With Canada and Mexico on Board, Carbon Pricing Could Become a Reality Across North America with Expanded U.S. Action

(Center for American Progress) Carbon taxes and emissions trading systems, once considered political moonshots in the battle to combat carbon emissions, have found purchase in Canada, Mexico, and parts of the United States, raising the possibility that carbon pricing could span the continent.

The Center for American Progress released an issue brief on the state and trajectory of carbon pricing in North America—including the increased interest in carbon pricing from a diverse set of U.S. proponents—and the existing and possible interactions among pricing instruments.

“It is increasingly plausible that North America could see continentwide carbon pricing,” said Gwynne Taraska, CAP Associate Director of Energy Policy and co-author of the brief. “The gains made in Canada and Mexico are significant steps toward the goal of ensuring that carbon polluters bear the associated costs. While long a political nonstarter in the United States, carbon pricing has begun to be embraced by voices on both sides of the aisle as an efficient tool to curb carbon emissions and the disruptive effects of climate change.”

The brief discusses new developments in Canada, where Prime Minister Justin Trudeau recently announced a pan-Canadian minimum carbon price of 10 Canadian dollars, or CAD, per ton by 2018, with that amount rising to 50 CAD by 2022. In Mexico, a national tax on fossil fuels was implemented in 2014 and a yearlong cap-and-trade pilot program begins this month, setting the stage for a national emissions trading system in 2018.

In the United States, there are two established emissions trading systems, covering 30 percent of the U.S. economy. There has also been an uptick of interest in carbon pricing at the state level, in the private sector, and among conservative policy experts, making it look increasingly possible that carbon pricing will expand throughout the country.

While carbon pricing is not a panacea for climate change—it is important, for example, that pricing systems accurately reflect the costs of carbon pollution in order to meaningfully limit emissions—continentwide carbon pricing would give momentum to the global climate effort.

Excerpts: by Gwynne Taraska and Howard Marano (Center for American Progress) Carbon pricing is flourishing in North America. Canada, for example, has announced a national price to take effect in 2018, while Mexico has announced a 12-month cap-and-trade pilot that will evolve into a national program. These developments join a network of established pricing instruments, including a carbon tax in Mexico and subnational systems in California, the northeast United States, and several Canadian provinces.

Once unlikely, it now seems probable that carbon pricing will proliferate not only across Canada and Mexico but also in the United States. Carbon taxes and cap-and-trade programs have found a diverse set of U.S. proponents, including from the private sector and from across the political spectrum, who view carbon pricing instruments as effective and efficient methods of curbing greenhouse gas emissions and the disruptive effects of climate change.

Carbon pricing is not a panacea for climate change. The majority of prices set by North American taxes and trading systems are well below the actual social cost of carbon pollution, which is conservatively estimated at $36 per ton for 2015.⁵⁰ A continentwide carbon price would be a hollow victory if it remained too low to motivate emissions reductions or had insufficient emissions coverage.

Full geographic coverage in North America, however, would be a significant step toward the ultimate goal of ensuring that polluters bear the cost of carbon pollution. And given the leadership role on climate action that North American countries have adopted on the international stage, it would also provide momentum to the growing movement to price carbon globally.⁵¹ READ MORE

Excerpt from World Bank: The Paris Agreement, reached at COP21 in late 2015, sets up a framework for global cooperation through carbon markets. Over 100 countries consider carbon pricing initiatives as part of their NDCs, through emissions trading within or across borders, international crediting, carbon taxation and other measures.

The report also shows that momentum on carbon pricing has continued to grow. In 2016, 40 national jurisdictions and over 20 cities, states, and regions are putting a price on carbon, including seven out of 10 of the world’s largest economies. The coverage of carbon pricing initiatives on global emissions has increased threefold over the past decade, translating to the equivalent of around 7 gigatons of carbon dioxide (GtCO2e), or about 13 percent of global GHG emissions. In addition, governments raised about US$26 billion in revenues from carbon pricing initiatives in 2015. This represents a 60 percent increase compared to the revenues raised in 2014.

This year saw the launch of two new carbon pricing initiatives: British Columbia put a price on emissions from liquefied natural gas plants alongside its carbon tax, and Australia implemented a safeguard mechanism to the Emissions Reduction Fund, requiring large emitters that exceed their set limit to offset excess emissions.

Looking ahead, next year could see the largest ever increase in the share of global emissions covered by carbon pricing initiatives in a single year. If the Chinese national Emissions Trading System (ETS) is implemented in 2017 as planned, it would become the largest carbon pricing initiative in the world, surpassing the EU ETS. READ MORE